Sh. Dinesh Kumar Goel vs Commissioner Of Income Tax
2011 Latest Caselaw 2539 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                             ITA No.790 of 2006

                                          With

                              ITA No.553 of 2007

                                                   Reserved on: April 04, 2011.
%                                                Pronounced On: May 11, 2011.

    1) ITA No.790 of 2006

       Sh. Dinesh Kumar Goel                                   . . . Appellant

                              through :             Mr.   C.S.  Aggarwal, Sr.
                                                    Advocate with Mr. Prakash
                                                    Kumar, Advocate.


                                      VERSUS

       Commissioner of Income Tax                              . . .Respondent

                              through:              Ms. Prem Lata Bansal, Sr.
                                                    Advocate with Mr. Deepak
                                                    Anand, Advocate.

    2) ITA No.553 of 2007

       Sh. Dinesh Kumar Goel                                   . . . Appellant

                              through :             Mr.   C.S.  Aggarwal, Sr.
                                                    Advocate with Mr. Prakash
                                                    Kumar, Advocate.


                                      VERSUS

       Commissioner of Income Tax                              . . .Respondent

                              through:              Ms. Prem Lata Bansal, Sr.
                                                    Advocate with Mr. Deepak
                                                    Anand, Advocate.




ITA No.790 of 2006 & ITA No.553 of 2007                         Page 1 of 12
 CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE M.L. MEHTA

       1.      Whether Reporters of Local newspapers may be allowed
               to see the Judgment?
       2.      To be referred to the Reporter or not?
       3.      Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. ITA No.790 of 2006 relates to the Assessment Year 1997-98,

which was admitted on the following substantial questions of

law:

"1. Whether the Income Tax Appellate Tribunal was correct in law in sustaining the disallowance of `18,99,255/- under the head „advertisement expenses‟?

2. Whether the Income Tax Appellate Tribunal was correct in law in sustaining the disallowance of the claim of expenses of `11,68,905/- under the head „printing and stationery‟ on the ground that same was to be considered in the block assessment proceedings and not under Chapter XIV of the Income Tax Act, 1961?"

Other appeal is in respect of Assessment Year 1998-99 which

also involves the aforesaid two questions with difference in

amounts only. It is for this reason, both the appeals were

heard together.

2. For the sake of convenience, we may take note of the facts of

ITA No.790 of 2006 giving rise to the questions formulated

above. Concededly, outcome of these questions in this appeal

would lead to same results in the other appeal as well.

3. The assessee furnished return of total income on 29.10.1997

declaring an income of `3,42,621/- inter alia claiming a

deduction of expenditure incurred on advertisement at

`1,00,36,975.75/-. The return was prepared on the basis of

accounts. A search operation under Section 132(1) of Income

Tax Act (hereinafter referred to as „the Act‟) was conducted on

18.08.1998 on the assessee. On 31.03.1999, the assessee

revised the return of income, within the statutory period under

Section 139(5) of the Act, wherein he returned a loss of

`58,39,070/-. In the revised return of income, he inter alia

enhanced the claims of expenditure incurred by:

(a) `3,69,500/- on printing and stationery (based on

two bills), as he found that, the expenditure

incurred under the aforesaid head was debited in

his books for the financial year 1997-98 instead of

the Financial Year 1996-97 i.e. for the Assessment

Year 1997-98, in which the said expenditure had

been incurred. In fact, apart from these two bills

further amounts incurred under the aforesaid head

of `7,99,405/- (supported by seven "credit bills")

were found, related to the Assessment Year 1997-

                      98    which      too,     had   also   been   claimed        as   a

                      deduction.          Thus,    an aggregate      deduction of

expenditure incurred under the head „printing &

stationery‟ of `11,68,905/- was made.

(b) Apart from the aforesaid sums, a claim of

expenditure of `40,78,858/- incurred was also

made. The expenses incurred were supported by

credit bills but remained to be ledgerized. Out of

the sum of `40,78,858/- a sum of `21,79,603/-

related to Assessment Year 1998-99 and remaining

sum of `18,99,255/- related to the Assessment

Year 1997-98.

4. On 29.03.2000, the assessment was framed under Section

143(3) of the Act at an income of `85,17,334/-. The Assessing

Officer (AO) though proceeded to compute income on the basis

of revised return, but disallowed the claim of the aforesaid

expenditure incurred by holding that the claim of deduction of

`3,69,500/- incurred on „printing & stationery‟ was incorrect

and "against the provisions of the Act". `7,99,405/- in respect

of printing and stationery bills pertaining to financial year were

not recorded and were found during search proceedings. On

this premise, he held the view that it had to be dealt with in

the block assessment. In respect of advertisement expenditure

of `40,78,858/-, the AO held that out of the advertisement

bills, `18,99,255/- were not ledgerized in respect of which

entry was made as per seized ledger in financial year 1997-98,

which narrated "provision for bill". According to him, this had

to be dealt with block assessment. In respect of remaining

sum of `21,79,603/-, he held that these bills were raised in

financial year 1997-98 and had been entered in the books of

accounts for 1997-98 and thus would be considered in financial

year 1997-98. He, thus, disallowed the claim of expenditure.

5. Being aggrieved by the order of the AO, the assessee preferred

appeal before the CIT (A). It was contended that since

genuineness of expenditure incurred had not been disputed,

the AO had erred in law in holding that the said expenditure

incurred in the Financial Year 1996-97 of `3,96,500/- and

`7,99,405/- aggregating to `11,95,905/- and of `18,99,255/-

under the two heads had to be allowed, as the assessee was

following mercantile method of accounting and could not be

disallowed. It was submitted that there was no justification to

say that it had to be dealt with in block assessment and that in

any case, it has not been allowed thereto. The CIT (A)

obtained a remand report of the AO on 16.01.2001, who

confirmed that the amounts credited in the account of

advertisers are genuine and were incurred for the services

rendered. In other words, there was no dispute about the

incurring of expenditure. The assessee furnished his

comments on 31.01.2001 with submissions that the deductions

claimed as aforesaid be directed to be allowed. The CIT (A),

however, held that the expenditure incurred was since not

ledgerized and thus could be a part of block assessment

proceedings.

6. Still dissatisfied, the assessee went in appeal before the

Income Tax Appellate Tribunal (hereinafter referred to as „the

Tribunal‟). However, here also, the assessee remained

unsuccessful as disallowance sustained by the CIT (A) has been

upheld by the Tribunal on the same ground, viz., the

expenditure was not ledgerized even though it pertained to the

assessment year in question and therefore, deduction could not

be considered in regular assessment.

7. It is clear from the above that there is no dispute that the

expenditure was incurred, and genuineness thereof is not

disputed. At the same time, legal question that arises is as to

whether the expenditure incurred under these two heads could

be disallowed for the reasons stated in the orders passed by

the Authorities below.

Question No.1

8. As noted above, the assessee had claimed a sum of

`40,78,858/- on account of expenditure on advertisement and

marketing expenses claimed in the revised return for the

Assessment Year 1997-98. The assessee had submitted that

these expenses had been accounted for in the Assessment Year

1997-98 as per ledger. However, he was claiming the same in

this assessment year in the revised return on the ground that

he was following mercantile system of accounting. The AO has

found that the assessee had not recorded advertisement bills

totaling `18,99,255/- in the books of account for Financial Year

1996-97. As per seized ledger for Financial Year 1997-98, one

entry of this amount had been recorded on 01.04.1997 with

narration "provision of bill". He, thus, observed that this

consolidated entry passed on 01.04.1997 represented

advertisement bill, was only an after-search-thought and was

an attempt to convert undisclosed income assessable under the

block assessment proceeding into allowable deduction. He

even asked the assessee to clarify the reason for not recording

the aforesaid advertisement bills amounting to `18,99,255/-

during Financial Year 1996-97 when these bills had been raised

on dates falling during financial year 1996-97, but reply was

not furnished by the assessee. Accordingly, the AO opined that

this expenditure had to be dealt with during block assessment,

which was pending in the case of the assessee. He disallowed

the claim of deduction of `18,99,255/-. This reasoning of the

AO had been accepted by the CIT (A) as well the Tribunal.

9. We fail to understand logic given by the Authorities below in

disallowing the expenditure. Such an expenditure cannot be

considered in block assessment, as provisions of Section 158B

of the Act would not apply. Section 158B of the Act deals with

special procedure for assessment of search cases, i.e.,

assessment of "undisclosed income" as a result of search.

Clause (b) of Section 158B of the Act defines "undisclosed

income" as under:

b) "Undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income

based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."

10. Thus, when during the search, it is found that there is wholly or

partly undisclosed income or property, assessment can be

carried out for the entire block period. It, thus, applies to

income which is undisclosed and is found during search which

may be in the form of money, bullion, jewellery or other

valuable article or thing or any income based on any entry in

the books of account, etc. It does not apply to "expenditure"

claimed which was incurred in the particular financial year.

Even the assessee is claiming deduction of the said expenditure

as business expenditure under Section 37 of the Act and this

has to be dealt with in the regular assessment and not in the

block assessment.

11. In the present case, the assessee had revised the return within

stipulated period prescribed under the Act. He was, thus,

entitled to do so. His plea was that the expenditure was

incurred during the year in question and even if the bills were

not received and they were not ledgerized, he had right to

claim the same as deduction, as he was following mercantile

system of accounting. In these circumstances, the AO was

required to go into the issue. He, however, did not apply his

mind at all on this aspect and merely on the ground that the

expenditure was not ledgerized, they proceeded on wrong

premise that it could be taken care of in the block assessment

year.

12. The orders of the Authorities below are, therefore, set aside.

At the same time, we may point out that the assessee has

claimed that the expenditure is actually incurred and payments

are made by account payee cheques. This aspect has not been

looked into by the AO at all. Therefore, it would be necessary

to verify as to whether the expenditure was incurred and for

this limited purpose, we remit the case back to the Assessing

Officer. If it is found that the expenditure was incurred, it

would be allowable as expenditure in the year in question. The

question of law is answered in the aforesaid manner.

Question No.2

13. In the revised return filed by the assessee, he claimed the

deduction of printing and stationery bills wrongly included in

Financial Year 1997-98 instead of 1996-97 amounting to

`3,69,500/-. When the assessee was asked to give details of

these printing and stationery bills, his reply was that two bills,

both dated 27.05.1996 of `1,89,000/- and `1,80,500/- were

previously not entered in the books of accounts. The AO,

however, disallowed the claim when he noticed that these were

neither ledgerized in Financial Year 1996-97 nor in Financial

Year 1997-98.

Another claim of `7,99,405/- was also disallowed on the

ground that the same was not recorded in the books of

accounts of the assessee and same was found during search

proceeding. Only when the Department seized during the

course of search, the assessee made the claim by filing the

revised return. Again, it was observed by the AO that since the

amount is not ledgerized, it can be taken care of in the block

assessment proceeding under Section 158BC i.e. Chapter XIV-

B of the Act.

14. Again, this is an expenditure item and for the reasons given

while answering the Question No.1, provision of Chapter XIV-B

would not be applicable and it was incumbent upon the AO to

consider the allowability or otherwise this expenditure in the

regular assessment. However, it would be open to the AO to

go into the veracity/genuineness of the expenditure. Thus, for

the same reason, we remit back this issue as well to the

Assessing Officer. If the expenditure is found to be genuine,

the same shall be allowed in this assessment year. This issue

is answered accordingly.

15. The same conclusion in drawn in respect of the next

assessment year 1998-99 in ITA No.553 of 2007.

16. Both the appeals are disposed of in the aforesaid terms.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE MAY 11, 2011 pmc